Will J.P. Morgan Woes Whack Fund Investors?

By Jonnelle Marte

It’s not just J.P. Morgan Chase (JPM) shareholders who are cringing today, following reports yesterday of the bank’s $2 billion in trading losses on bad derivatives bets. The stock plunged 8% Friday morning – which could impact the millions of investors who indirectly own the stock through mutual funds and exchange-traded funds.

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Some investors might be surprised to learn just how exposed they are to the bank, which Thursday said the losses came from a series of complex wagers on the economic recovery that went wrong. According to research from S&P Capital IQ, 16% of domestic stock funds have the bank listed as one of their top 10 holdings. As of the funds’ most recent filings, that includes:

$1.5 billion Oppenheimer Main Street Select (OMSOX) had a 5.7% stake in the bank.

Index funds and exchange-traded funds also own J.P. Morgan, from broad-market indexes to financial-sector funds. Those offerings that track the Standard & Poor’s 500-stock index typically have only 1.3% of assets allocated to J.P. Morgan — not enough to drag down them even down, says Jeff Tjornehoj, a senior research analyst at fund tracker Lipper. But funds with more concentrated bets, he says, could have more on the line. For example, the $298 million iShares Dow Jones US Financial Services Index fund (IYG) recently had a 12.4% stake in J.P. Morgan, while the $6.4 billion Financial Select Sector SPDR (XLF) invested 8.8% in the bank, according to Lipper data.

A tool like Morningstar’s Instant X-Ray can tell you how much J.P. Morgan you hold in your mutual funds. If you learn you’re holding more of any one stock than you’re comfortable with, experts say it you might want to opt for a more diversified fund. Choosing more diversified funds over those that make concentrated bets on certain sectors or companies may help you minimize volatility, adds Rosenbluth. For instance, shares of J.P. Morgan fell today, but the overall market gained – meaning well-diversified stock funds likley held up well, he says.

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